The new paradigm

Solving the Debt Crisis | A Catch-22

The Obama administration’s solution for the nation’s impending destruction, due to out-of-control deficit spending, is to increase the debt ceiling now, and worry about spending cuts later. The Obama administration is under the impression that more borrowing power will enable the nation to maintain its AAA Credit rating. The Catch-22 is that an instant increase in the debt ceiling will result in an instant downgrade to the nation’s credit rating. You see, the problem is not the level of the nation’s debt ceiling; the problem is America’s debt-to-GDP ratio. If raising the debt ceiling by $2.5 trillion would result in an equal increase in gross domestic product, then the problem would be solved. However, there is no verifiable link between government spending and economic growth.

The following passage, from Joseph Heller’s book, “Catch-22”, about sums up the whole zero-sum debt dilemma: “There was only one catch and that was Catch-22, which specified that a concern for one’s safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to.” The solution to Orr’s problem would be to simply end the war. Similarly, the solution to the National Debt problem is to simply end the Fed.

Obama and his supporters are basically saying, “You have to buy more government bonds, otherwise the bonds you already own will go into default.” In other words, the only way the government can continue to pay the interest on its $14.5 trillion National Debt is through incurring more debt. Like Orr in Heller’s Catch-22, Obama must be thinking: I have bankrupted the federal government and need to borrow more to keep from going broke. If we don’t raise the debt ceiling, the National Debt will be contained, but we will not be able to pay the interest on the current debt. If we raise the debt ceiling, we will increase our debt thus ensuring our demise, but if we don’t raise the debt ceiling then we must declare bankruptcy. If we raise the debt ceiling we will be bankrupt, and if we don’t raise the debt ceiling we will be bankrupt.

What AAA Rating? – While American politicians claim that their intention is to preserve the nation’s alleged AAA credit rating, Dagong Global Credit Rating Co., Ltd. (Dagong), China’s credit rating service, has already lowered its rating to A+/negative. Dagong initially assigned the United States a sovereign credit rating of AA in July 2010, but lowered this rating on November 3, 2010, when the U.S. Federal Reserve announced its QE2 monetary policy. In Dagong’s opinion, QE2 was “aimed at stimulating the U.S. economy through issuing an excessive amount of U.S. dollars”, which it saw as a sign of “the collapse of the U.S. government’s ability to repay its debt and a drastic decline of its intention to repay”. Dagong therefore downgraded the U.S.A.’s credit rating to A+/negative, and has since placed the sovereign credit rating of the United States on its Negative Watch List. But who cares about China’s credit rating service, right? After all, we only acknowledge Moody’s and S&P in the West, because we can always borrow from Europeans, right?

Unasked Questions – The questions that politicians have failed to consider in this entire futile debate are as follows:

Why is the government in debt? – The federal government is in debt because it has given its ability to create money over to the privately owned Federal Reserve, and to privately owned National Banks. Every time the government needs money, it must first borrow it from the Federal Reserve by exchanging bonds for cash. Why? If the government were to simply print its own currency, similar to Lincoln’s Greenbacks, then there would be no National Debt at all. So why not change this first? If the federal government were to pass the Monetary Reform Act, it would be able to payoff the entire National Debt within a year, and would simultaneously extinguish from its budget $400 billion per year in interest payments.

Where will the money come from? – When the Obama administration proposes to increase the National Debt by another $2.5 trillion, it’s most profound that no one is asking where the money will come from. So where will the money come from? The answer is out of thin air. That’s right. The money the government borrows is created out of thin air. But creating money out of thin air has consequences, namely inflation. When the Fed prints money and exchanges it for government bonds, the existing money supply is diluted, in other words, worth less. Who needs QE3, when you’ve got Obama-Year-3?

Dazed and Confused – Many, so called, conservatives seem to be confused on the matter of Monetary Reform. When we say, “Who cares about the banks, let them go broke”, they reply, “but banks are businesses and what you are proposing is anti-capitalism.” It’s funny that when it came to big bank bailouts, the same crowd who was chanting, “Let them go broke,” is now saying, “Don’t take away our precious banks.” I maintain that banks are not businesses. Banks produce no real goods or services; they merely buy, sell and hold debt. They also receive the largest government subsidy there is, the ability to create money out of thin air and to loan it out at interest.

Real businesses produce real products and services such as oil companies. Oil companies drill for oil and natural gas, and then refine it into tangible products sold to the public for profit. When politicians speak of taking away, so called, tax subsidies for oil companies, what they are really saying is that U.S. citizens should pay more in energy costs, not that oil companies should pay more in taxes. When we say, “End the Fed,” what we are really saying is, “End the National Debt”. When we say, “Raise bank reserve ratios from 0% to 10%, to 100%”, what we are saying is, “Take away the national banking system’s ability to create and loan out money that it doesn’t have.”

The Only Solution – Cutting taxes, reducing spending, raising taxes, and increasing spending are proposals which no matter how you structure them will not solve the real problem. Borrowing more to keep from going broke is not only absurd, it’s insane. So who’s kidding who? Passing the Monetary Reform Act will solve the National Debt problem and place America firmly on the road to recovery. In my opinion, there is no other solution.

Until there is reform, “Render unto Caesar the things which are Caesar’s, and unto The United States the things that are the Federal Reserve Bank’s.”